What is Debt Consolidation and How Does It Work?

Mar 012017

A credit card here, a car loan there, you may not realize how much debt you have accumulated until it's too late to make monthly payments comfortably. Perhaps you have had a change in employment or a sudden, large expense you hadn't counted on. Whatever the case may be, it does not take long before your credit is damaged and you are in over your head. Debt consolidation may be the answer to your predicament.

The What and How of Debt Consolidation

When you accumulate debt from various sources, they are generally high interest and when you have several payments to make monthly, they can add up to a significant portion of your income. Debt consolidation loans are a way to combine all of your payments into one monthly payment that is often quite a bit less than the amount you pay currently, which makes it easier to pay off your debt. The reason the payment is usually less than the total of many individual payments is that debt consolidation loans usually carry lower interest rates than credit cards, store revolving credit accounts and even small loans.

In Edmonton, bad credit debt consolidation loans are often secured against the equity in your home. This provides lenders with security so they are more likely to take a risk by investing in you. The monies advanced through the loan pay off all of your current debts and since the interest rate is likely lower, this means more of your payment pays down your debt each month. For people who have fallen into a bad debt situation due to circumstance, debt consolidation may be the answer to rebuilding your credit and your financial future.

When Debt Consolidation May Not be the Answer

If you are making a genuine effort to become debt-free and your focus is on paying off your debt consolidation loan and changing your spending habits, then it is likely the best solution for your situation. Too often, people do not curb their spending and once their credit cards have been paid off with the consolidation loan, end up charging them right back up. In such cases, you now have a debt consolidation loan that has tied up the equity in your home as well as high credit card payments all over again. This type of scenario can lead to serious problems since you will not have a recourse to reduce your debt load.

If you're struggling under the weight of your debt and you aren't sure if an Edmonton debt consolidation loan is the right solution for your situation, your mortgage advisors of BMC Mortgage & Investments can help. We've been helping families in Edmonton and surrounding areas for more than forty years with sound advice and debt consolidation loans that provide them the fresh start they needed. Contact us today and let's look at your options.